Case Studies - Tax advice

A Tale of Two Houses: A husband and wife jointly purchased a house for £17,000, and were about to sell it for £350,000. They had lived in part of the house for some of the period of ownership. The calculations were somewhat complex, but by the time we concluded, they had a joint tax liability of only about £23,000. The rules for principal private residence relief are not simple, but if you know them it can save you a lot of money. The couple were taken aback at how easily they could have paid too much tax.
Keeping Good Company: An individual had control over two associated companies. Consequently the corporation tax due for one of the companies was about £20,000 more than if they had not been associated. We showed them a simple route to enable them to demonstrate that the companies were not subject to the higher rate of corporation tax. The businessman found that contacting us was a sound investment.
Compensation Culture: An accountant approached us with the following question:-

His client ran his own self-employed business. While on a motorbike he was negligently knocked off by a motorist. He and the other party came to an out of court settlement. The agreed sum was for a combination of medical fees and loss of earnings from his business. An initial sum was paid, and the remainder was due to be paid in the next tax year. His question was: is the remaining lump sum taxable in the year of settlement, or in the year of receipt? It made a difference taxwise, since in the year of receipt he was a 40% taxpayer.

We directed him to the Inland Revenue Business Income Manual page BIM40105. There it is explained that: "If a sum, resulting from a claim to compensation or damages, is referable to trading operations then it will normally be a trade receipt. This will be so even if the payer's legal liability is never established. But payment made to the trader as a personal matter rather than in his capacity as a trader is unlikely to be chargeable. For example: Compensation for personal injury to a trader, even if the sum is measured by reference to loss of earnings or earning power. Thus, damages received for such personal injuries should not be included in the computation of professional or trading receipts, even sums calculated by reference to the loss of income already sustained, or the loss of future earning power. In such cases, because the receipt in the form of compensation is not taxable, it is the practice of the Courts, in calculating amounts referable to the loss of earnings, to treat the compensation as if paid net of the tax liabilities that would have arisen had the individual not suffered injury and the consequent income loss. This is called the Gourley principle after the leading case in the field, British Transport Commission v Gourley (1955) 3 All ER796." Understandably, the accountant was very happy, as was the client.
10% Tax? That'll do nicely...: The taxpayer and his partner were selling their computer business that operated through a limited company for £1M. We explained how the sale could be structured so that the tax bill was limited to less than 10% of the sale proceeds.
Domestic (tax) bliss: The taxpayer had separated from his wife, and the divorce was pending. We gave guidance about the transfer of assets in the divorce settlement in a way that would avoid capital gains tax. This made a significant difference to the taxpayer. He also asked advice about the future arrangement of his assets, because he wanted to meet and marry a new wife, but wanted to protect himself against the financial liabilities that this could create (once bitten, twice shy). We showed him a way to proceed that he was impressed with.
Trust us: The taxpayer had set up a discretionary trust some years ago for inheritance tax purposes. Now they were concerned about the effects that the new pre owned asset legislation would have on their situation. We advised about the tax liability for the current year, what could be done to mitigate it, and what could be done to improve things significantly in future tax years.
Two's company: Company A lent company B a few hundred thousand pounds and later wrote off the loan. What were the tax consequences for company B? We showed how there would be no tax consequences for company B since in that accounting period the two companies were connected as defined by Finance Act 1996 section 87 as amended by Finance Act 2002.